Union membership and the wage gap between the public and private sectors: evidence from China

Abstract

As trade unions are active in corporations worldwide, their effects on the labor market have attracted global attention. However, there is scarce empirical evidence regarding how trade unions’ effects on the wage gap differ between the public and private sectors, especially in the Chinese context. Using national longitudinal survey data from the China Family Panel Studies for the years 2010, 2012, 2014, 2016, and 2018 and the Blinder-Oaxaca decomposition method, this study estimates unions’ effect on the wage gap between the public and private sectors in China. The results from the Ordinary Least Squares (OLS) method indicate the existence of a significant positive union wage premium nationwide. Additionally, the premium in the public sector is greater than that in the private sector. However, this effect becomes insignificant after accounting for individual heterogeneity using the fixed effects model. The decomposition results based on the OLS method indicate that the union coverage difference (the endowment effect) widens the wage gap between the public and private sectors; conversely, the union wage premium difference (the price effect) narrows the wage gap. These results indicate that a policy expanding union coverage in the private sector may effectively narrow the wage gap between both sectors.